In 2010 just 25 per cent of claims handled by debt recovery law firm Lovetts included compensation, rising to 27 per cent in 2011 and 31 per cent in 2012.

From the start of 2013, 33 per cent of claims have included compensation.

However, according to Lovetts, many small businesses are missing out on the opportunity to claim compensation because they haven’t laid down any firm ground rules at the outset of new business relationships.

The firm urges businesses to take a tough line on late payment and if necessary use the legislation already available to them.

Lovetts advises companies to make sure the customer understands that legitimate costs, compensation and interest will be claimed if late payment occurs.

Having done this, businesses should call or email after invoicing to check the invoice has arrived with the right person to approve.

As soon as it becomes overdue, the customer should be called and reminded that late payment compensation and interest are  due on each invoice and that they will be claimed if it goes legal.

Charles Wilson, CEO of Lovetts says, ‘New late payment regulation was introduced in March but based on the poor use of existing legislation, I have very little faith in the EU directive making any impact on late payment practices.

‘It comes down to business relationships and ensuring that in the early stages SMEs make clear that they won’t stand for any delays and will claim costs if necessary.

‘With suggestions that the economy is starting to pick up, we would urge the small and medium sized firms to tackle the issue of payment upfront as new customers come on board. Don’t let it become the elephant in the room.’

Businesses turning to no-nonsense approach to combat late payment

More than half of British companies are being left with no alternative but to suspend work and services in order to protect their cash flow against the continued threat of late payment, new research finds.

This hard-line tactic, used by 54 per cent of businesses during 2012 according to Hilton-Baird Collection Services’ Late Payment Survey, is representative of the no-nonsense approach that many are adopting against late paying customers.

The figure is 7 per cent higher on an annual basis and one of several credit management strategies that has risen in popularity over the same period, including new customer credit checks (used by 48 per cent), writing to debtors, including solicitor involvement (47 per cent), suspending customer credit facilities (45 per cent), and small claims courts and county court judgments (31 per cent)

Hilton-Baird’s annual survey also finds that 6 per cent of the businesses surveyed had to make at least one employee redundant last year as a direct consequence of late payment.

One in 20 respondents were also forced to reduce staff working hours and shifts due to their customers’ failure to pay on time, as official statistics from the Office for National Statistics suggest the UK’s unemployment rate increased to 7.9 per cent in the three months to the end of February 2013.

Alex Hilton-Baird, managing director of the eponymous firm, believes late payment is therefore having deeper ramifications than many realise.

‘It is a major concern that people are losing their jobs as a direct result of the cash flow implications of late payment. This country needs people in work for the economy to move forward, but too many employers are finding it increasingly tough to sustain their existing payroll,’ he says.

‘It is encouraging, however, that a firmer stance is being taken by businesses to safeguard their cash flows from late payment. The decision to suspend work is not an easy one given the temptations to chase turnover in light of the shortage in demand that so many sectors are experiencing currently, but businesses aren’t shying away from making tough decisions. This bold approach could prove key to their survival.’